more unnatural stimuli for mr mkt
Bush Urges Stimulus Up to $75 Billion
By Glenn Somerville
WASHINGTON (Reuters) - The reeling U.S. economy needs fresh stimulus measures of up to $75 billion fast to help it cope with the shock of the devastating Sept. 11 attacks, President Bush (news - web sites) said on Wednesday.
Bush said the new money would be on top of billions of dollars worth of emergency measures already announced.
And by day's end, the bold bid to spur business investment and extend a helping hand to people put out of work in the wake of the brutal attacks was garnering heavyweight support.
Bush and Treasury Secretary Paul O'Neill used separate appearances in New York and on Capitol Hill to push the plan and Federal Reserve (news - web sites) Chairman Alan Greenspan (news - web sites) reportedly gave his blessing at a private session with lawmakers in mid-afternoon.
Greenspan, joined by former Treasury Secretary Robert Rubin and White House economic adviser Lawrence Lindsey, met congressional leaders. House Republican leader Dick Armey said later there was ``clear understanding on the size and some fairly good consensus'' on the makeup of a stimulus package.
Just two weeks ago, Greenspan was urging caution about added stimulus for fear it might strain the government's budget so severely that long-term interest rates would shoot higher.
RECESSION FEARS MOUNT
But a growing impression that the U.S. economy is in deep trouble -- likely already in recession -- seemed to be setting in among the nation's top policymakers and adding urgency to the bid to cushion the blow the economy has suffered.
``A couple of weeks ago they said 'stop'. This week they said 'go,''' said John Feehery, spokesman for Dennis Hastert, Speaker of the U.S. House of Representatives.
Economist Doug Lee of Economics from Washington Inc. said that some upcoming economic data ``are going to look ugly.''
Greenspan, known for his keen political as well as economic skills, appears to be well aware of that.
``Is Greenspan worried? I'm sure he is, but anyone with any sense is worried. And he has a lot,'' Lee said.
Congress has already passed measures that include $40 billion in emergency spending and about $15 billion of aid and loan guarantees for airlines that have seen a steep drop-off in business following the attacks.
``With the actions already taken, about $50 billion of spending has already been put in motion. Recognizing this, the president has instructed me to work with the appropriate members of Congress to formulate a package of actions with a fiscal year 2002 impact of about $60 (billion) to $75 billion,'' O'Neill told the Senate Finance Committee.
Bush, in New York addressing business leaders, urged Congress to move fast on the package.
He said ``the two most effective ways'' to boost consumer spending would be to provide tax rebates and accelerate personal income tax rate cuts already in the pipeline. He said for business investment tax credits and faster write-offs for purchases of computers and high-tech equipment might help.
O'Neill also suggested the possibility of ``national emergency grants'' to help states cope with the aftermath of the attacks -- like assisting people whose jobless benefits run out or helping with health care insurance payments.
MARKETS RESPOND POSITIVELY
Financial markets clearly liked the new proposals.
The Dow Jones industrial climbed 173.19 points to close at 9,123.78 and the high-tech laden Nasdaq composite index soared 88.48 points -- nearly 6 percent -- to end at 1,580.81.
Bond prices also strengthened on hopes that those formulating the package will be cautious about its impact on the government's budget and borrowing needs.
The Fed has been pumping stimulus of its own into the economy since the attacks, and analysts have said that a one-two punch of monetary and fiscal stimulus is needed.
Paul Kasriel, an economist with Northern Trust Co. in Chicago, said the proposed package coupled with the Fed's aggressive easing this year represented ``the most combined stimulus in over 15 years'' and should pack a powerful wallop.
``Don't bet against the Fed and Congress,'' he added.
The Fed on Tuesday cut rates a half-percentage point for the second time in just over two weeks, to 1962 levels.
Sen. Kent Conrad, chairman of the Senate Budget Committee, said the amount O'Neill proposed to spend as part of a sweeping package of new stimulative steps did not alarm him. ``I think it is in the ballpark,'' the North Dakota Democrat said.
However, Senate Majority Leader Tom Daschle, a Democrat from South Dakota, said some Senate Democrats favored a smaller package of about $50 billion in order to avoid pushing long-term interest rates, such as mortgage rates, higher.
O'Neill, fielding questions from lawmakers that highlighted wide-ranging opinions about whether businesses or consumers should be targeted for relief, steered a middle course. He added that there was ``broad agreement'' that stimulus should not be so large it pushed up long-term rates.
SPEED DESIRABLE
Whatever was done, fresh stimulus measures should be agreed upon before Congress recesses for the year, the Treasury chief said. ``If we can do it in the next three or four weeks that would be highly desirable,'' he said.
Bush said the underpinnings are in place for an economic recovery but urged consumers to resume normal business.
O'Neill, who appeared to be the designated front man for Bush on fiscal stimulus, said there was agreement that a package should total roughly 1 percent of gross domestic product but not be so large it causes long-term budget damage.
The Treasury secretary has said in the past few weeks that the economy can avoid a recession, commonly defined as two straight quarters of economic contraction. But on Wednesday, he struck a less upbeat note, saying the attacks had created widespread economic disruption.
``Consumers stayed home and, as a consequence, it now seems certain that when numbers are tallied for the third quarter, they will show that our economy experienced negative real growth,'' he said.
In response to questions, he said it was ``conventional wisdom'' that GDP (news - web sites) -- the broadest measure of total economic activity -- will shrink in the fourth quarter this year and possibly in the first three months of 2002.
If so, the United States would be facing a nine-month recession, matching the mid-1990 to March 1991 contraction. Since then, the country has enjoyed a record expansion. |
